It’s important to understand the actions required and the implications of Foreign Resident Capital Gains Withholding if you are selling real estate in Australia.
Initially, Foreign Resident Capital Gains Withholding only applied to real property transactions contracted at over $2 million dollars and so it affected relatively few transactions in South Australia. With the lowering of the threshold from July 1, 2017 its impact is now broader. FRCGW applies to all Vendors in South Australia who are selling real property with a Contract price of $750,000 or more.
Vendors are required to apply for a Clearance Certificate to avoid having tax of 12.5% withheld from their property proceeds. You can apply yourself using this ATO link FRCGW or, in the case of clients of Eckermann Conveyancers, we are able to complete this task on your behalf.
Once you have applied for the FRCGW Certificate, receipt can take up to 21 business days, so it is extremely important that the vendor or their conveyancer applies as soon as practicable following the execution of the Contract of Sale. This is particularly important in the case of shorter settlements as time is of the essence. Regardless of the length of settlement, it is prudent to apply as soon as you know the contract price is $750,000 or more.
Usually the process is quite straight forward however, if the Vendor has not lodged a tax return within the previous two years, or they have a tax debt, the application is allocated to a different section of the ATO. We have seen this result in extensive delays. There is no escalation process in these instances so this will simply require waiting in line until your time comes.
In the event that the FRCGW Certificate has not been received prior to settlement, the settlement process can still proceed however the Purchaser’s conveyancer is required to withhold 12.5% of the sale price from the vendors portion and pay this to the ATO at settlement. This is an obvious inconvenience and if the Vendor is subsequently eligible for a credit of the 12.5% that refund will be processed next financial year when the Vendor submits their next tax return. It cannot be processed beforehand.